M/S Manipal Media Network Limited vs M/S Vishwakshara Media Private Limited

M/s. Vishwakshara Media Pvt. Ltd. No. 915, Dhanush Plaza, 2nd Floor, Ideal Homes Township, Rajarajeshwari Nagar, Bengaluru-560098. ....Respondent

Present

For Appellant: Shri Gautam Singh, Advocate

For Respondent: Shri D.P. Chaturvedi, Advocate

Judgment (Date: 21.6.2021)

{Per: Dr. Alok Srivastava, Member (T)}

This appeal is against the order of Adjudicating Authority,

(NCLT Bengaluru) dated 16.12.2019 in CP (IB) No. 327/BB/2019, Company Appeal (AT) (Insolvency) No. 369 of 2020

Page 1 of 18 qua which application under Section 9 of the Insolvency and

Bankruptcy Code (hereafter called the IBC) filed by the Operational

Creditor M/s. Manipal Media Network Limited was dismissed on the

ground of pre-existing dispute.

2. While the precise amount of debt in default is disputed by the

Respondent, he has not disputed that the amount in default is

more than Rs. One lakh which is the threshold for maintainability

when the application under Section 9 of IBC was filed by the

Appellant before the Adjudicating Authority.

3. The facts of the case are as follows: -

The Appellant (Operational Creditor) Manipal Media Network

Private Limited, and the Respondent (Corporate

Debtor)Vishwakshara Media Private Limited, entered into three

separate agreements wherein the Appellant became the printing-

partner of Corporate Debtor for printing of three newspaper editions

and supplements of newspaper "Vishwavani" issued from Gulbarga,

Hubli and Manipal. These three separate agreements, all signed on

4.12.2015, have been entered into between the Appellant and the

Respondent - first one relating to the Gulbarga printing facility, the

second one relating to the Hubli printing facility and the third one

relating to the Manipal printing facility for Vishwavani newspaper

and its supplements. The Appellant's case is that the Respondent

kept on making requests through emails for printing jobs even after

Company Appeal (AT) (Insolvency) No. 369 of 2020

Page 2 of 18 the expiry of the term of the agreements on 3.12.2017 and the

Appellant kept on raising invoices for printing charges every

fortnight as was required under the agreement, and the Respondent

continued to make payments till January 2018. On the other hand,

the Respondent says that the agreements dated 4.12.2015 were for

a period of two years, which expired on 4.12.2017, and thereafter

they were not extended through written mutual agreement of both

the parties. Therefore, Respondent claims the agreements were not

in force for the period the dues are being claimed for payment by

the Appellant and hence no payments are due to be made to the

Appellant.

4. The Appellant has alleged that the Respondent defaulted in

payment of invoices for the period February, 2018 to November,

2018. In order to get his pending payments, the Appellant e-mailed

all the pending invoices to the Respondent on 27.8.2018 informing

him about the total amount due for payment. He has further alleged

that, through an email dated 5.9.2018, the Respondent (Corporate

Debtor) sought time from the Appellant to make the pending

payments. There is a catena of e-mail communications between the

Appellant and Respondent between 6.9.2018 to 27.2.2019 (attached

in Appeal Paper book, pp.188-222), seeking pending payment by

the Appellant, and from the Respondent asking for time to clear

Company Appeal (AT) (Insolvency) No. 369 of 2020

Page 3 of 18 pending payments. Through an email dated 19.2.2019 (pg. 224 of

Appeal book), the Respondent informed the Appellant for making

part payment of pending dues and restarting printing from

1.3.2019 at Gulbarga printing unit and promised to pay Rs. 10

lakhs in advance. Later, the Respondent informed the Appellant

through e-mail dated 27.2.2019 that the restarting of printing at

Gulbarga unit has been postponed. Since the Appellant was not

getting any satisfactory resolution in the issue of pending

payments, the Appellant issued demand notice under Section 8 of

the IBC on 23.4.2019 which did not elicit any reply from the

Respondent. Thereafter, on 7.6.2019, the Appellant filed an

application under Section 9 of the IBC for repayment of its debt

which was due and payable. The Adjudicating Authority dismissed

this application vide its order dated 16.12.2019 on the main ground

of pre-existence of dispute regarding the pending debt.

5. IA No. 969/2020 was filed by the Appellant praying for

condonation of delay of 18 days in filing this appeal. Looking to the

reasons presented by the Appellant in IA No. 969/2020, we

condone the delay in filing this appeal.

6. The Respondent has submitted his reply cum objections to

the Appeal Memo upon which the Appellant has filed rejoinder.

Both the parties have submitted their written notes and presented

Company Appeal (AT) (Insolvency) No. 369 of 2020

Page 4 of 18 oral arguments in detail.

7. The Appellant has also stated that the Adjudicating Authority

has made an unjustified conclusion in the Impugned Order that the

debt is based on an agreement that has lapsed and the application

under Section 9 of IBC filed by the Appellant is untenable which is

basically for recovery of the amount alleged to be due and also that

there was a pre-existing dispute. The Adjudicating Authority has

also held that the amount claimed in invoices which includes 18%

rate of interest applied on pending amount is not in accordance

with the relevant clause of the agreement and the Adjudicating

Authority is not required to do an enquiry to calculate the exact

amount due. On these grounds the application of Appellant under

Section 9 of IBC has been dismissed.

8. The Ld. Counsel for Appellant has stated in the written

submission that the Respondent Vishwakshara Media Private

Limited (Corporate Debtor) approached the Appellant Manipal

Media Network Ltd. (Operational Creditor) for printing job of its

three newspaper editions at Gulbarga, Hubli and Manipal and three

separate agreements were signed on 4.12.2015 between the parties

for the printing jobs. Clause 7A of the agreements stipulate that

the minimum number of chargeable copies of Vishwavani

newspaper for each day shall be 10,000 each. It also stipulates

Company Appeal (AT) (Insolvency) No. 369 of 2020

Page 5 of 18 that the permissible printing wastage will be less than 4% as it is

the standard wastage for 10,000 copies. The Ld. Counsel has

argued that as the number of copies increase, the percentage of

wastage decreases, but if the print order is small, the percentage of

wastage becomes high. The wastage percentage of 4% is in relation

to the 10,000 copies and hence as the number of copies directed to

be printed by the Corporate Debtor for various editions was much

lower than 10,000, the wastage percentage of newsprint was more

than 4%. He has pointed to the print order for Kalaburgi edition

for 30.5.2017 (attached on page 211 of Appeal Memo) is 2668.

Similarly, the print order for Bangalore edition for 30.5.2017 is

3502. These print orders are given by the Corporate Debtor. Quite

evidently these print orders are less than 10,000 copies stipulated

in the agreement as the minimum print order. The Ld. Counsel of

Appellant has claimed that, therefore, the percentage of wastage of

newsprint is higher than what was stipulated in the agreements for

printing.

9. In oral arguments, the Appellant's Ld. Counsel has argued

that the agreements were initially for two years, which could be

extended by mutual written agreement. He has urged that the

agreements between the parties for printing at all the

aforementioned printing units was,by conduct of parties, extended

because the Respondent kept on sending written communication in

Company Appeal (AT) (Insolvency) No. 369 of 2020

Page 6 of 18 the form of emails for printing beyond 3.12.2017 which were being

complied by the Appellant by providing printed copies of the

newspaper editions, and the Appellant was subsequently raising

invoices for the print jobs. According to the Appellant these

invoices were duly accepted by the Corporate Debtor and there is no

e-mail on record which shows any objection or demur by the

Corporate Debtor regarding taking up these print jobs and

payments were accordingly made till January, 2018. In support

he has attached copies of print orders given by the Respondent -

Corporate Debtor from December 2018 to August 2019 in the

appeal memo (attached at pages 15 to 462 of the Appellant's

Rejoinder). The Appellant has claimed that the payments have to

be made within 7 days of raising of invoices as per Clause 8 of the

agreement.

10. The Learned Counsel for Appellant has argued that for 16

days there was no printing, since the Corporate Debtor failed to

supply newsprint for printing of the newspaper editions and

supplements. In support of his arguments, the Applicant has cited

e-mail dated 7.3.2018 (page 205 of Appeal Memo) from Basavaraju,

an employee of Corporate Debtor to Sudarshan Sherigar, an

employee of Operational Creditor. Again on 7.3.2018, Sudarshan

Sherigar wrote an email that newsprint is not reaching on time and

they do not have any newsprint stock to print the newspaper.

Company Appeal (AT) (Insolvency) No. 369 of 2020

Page 7 of 18 Vishveshwar Bhatt of the Corporate Debtor wrote on 5.3.2018 to

Sudarshan Sherigar that since there is newsprint crunch there are

delays in sending it to Manipal. Again in an e-mail dated 27.2.2018

a representative of Corporate Debtor has urged the Operational

Creditor to use newsprint of other publications which may be

available with them for the time being. All these e-mails go to show

that newsprint which was to be supplied by the Corporate Debtor

as per the agreement was not reaching the Operational Creditor on

time and hence there was a delay in printing of the newspapers.

Therefore, the 16-day delay in printing, as alleged by the

Respondent (Corporate Debtor) cannot be ascribed to the Appellant

(Operational Creditor).

11. In his arguments and written submission the Ld. Counsel for

Respondent has claimed that the Appellant's claim for payment of

debt is in respect of the three lapsed agreements, all dated

4.12.2015, which were valid only for a period of two years.

Therefore, the application filed by the Operational Creditor under

section 9 of the IBC is against the terms of the said agreements.

The Ld. Counsel of Respondent has also claimed that the Appellant

failed to respond to various emails of the Respondent and did not

provide proper and satisfactory information and clarification about

the high percentage of wastage of newsprint. He has pointed to

emails dated 28.9.2016, 5.10.2016, 25.5.2017, 2.7.2018 and

Company Appeal (AT) (Insolvency) No. 369 of 2020

Page 8 of 18 9.8.2018 wherein the Respondent sought clarification from the

Appellant regarding the high percentage of wastage of newsprint in

printing and that the Respondent did not receive any clarification or

explanation about it from the Appellant. He, therefore, did not

perform his part in accordance with the terms and conditions of the

said agreement. The Respondent's Ld. Counsel has pointed to

Clause 6 of the said agreements to maintain that the overall

wastage of newsprint had to be less than 4% and the minimum

number of chargeable copies was 10,000 in Clause 7A of the

agreements. The Learned Counsel has claimed that any actions

taken after the lapse of said agreements are invalid and the

Corporate Debtor is not obliged to make payments for such print

jobs. The Respondent's Ld. Counsel has also pointed out that in

terms of clause 24 of the said agreements, in case of any dispute

the matter has to be referred to an arbitrator under the Arbitration

and Conciliation Act.

12. The Respondent's Ld. Counsel has furthermore claimed that

the Appellant did not print and supply newspaper for 16 days,

thereby causing a loss of Rs 9,77,000/- to the Respondent. He has

also mentioned that the interest rate on pending debt should have

been charged at 15% per annum as per the agreement, whereas the

Appellant has claimed 18% per annum as interest on the pending

amount. Finally, the Respondent's Ld. Counsel has claimed that the

Company Appeal (AT) (Insolvency) No. 369 of 2020

Page 9 of 18 provisions of IBC can be used only in cases of insolvency and

bankruptcy and cannot be invoked for recovery of amounts that are

outstanding.

13. The issues that are germane to this appeal are:

(i) Whether the agreement that had allegedly lapsed on

3.12.2017 was extended by conduct, as has been claimed by

the Appellant and whether the printing jobs carried out at the

request of Corporate Debtor will be covered by the terms of

the agreement

(ii) Whether the percentage of wastage of newsprint and the

minimum number of chargeable copies are in consonance

with the provisions in the agreement and is there a pre-

existing dispute regarding percentage as has been claimed by

the Respondent,

(iii) Whether the Appellant can invoke provisions of IBC in view of

Clause 24 of the agreements for printing, which relates to

arbitration under Arbitration and Conciliation Act.

14. When we consider the conduct of the parties after the lapse of

the said agreement on 3.12.2017, we find that the Respondent

continued sending emails for printing to the Appellant and the

Appellant was duly complying with these requests. Therefore,

written communication between the two parties by giving orders on

Company Appeal (AT) (Insolvency) No. 369 of 2020

Page 10 of 18 email for printing jobs for the newspaper editions and acceptance of

those orders by the Appellant was in the nature of written mutual

consent of both the parties and is tantamount to working according

to the terms of the agreement even beyond the lapse of period

mentioned in agreement. Thus even though there was no explicit

written mutual agreement for the extension of the agreement, the

conduct of both the parties shows that both the parties were

working together even after 3.12.2017 as if the agreements

continued to be in force. In support the Appellant has attached a

list of 66 email communications wherein there are emails that show

that the Appellant continued to receive orders for printing even after

the said expiry of the agreements as per their original term, and

that these orders were complied with and the Operational Creditor

continued to raise invoices for the same and receive payments till

January, 2018.

15. The Appellant issued Demand Notice dated 23.04.2019 which

was not responded to by the Respondent. It is worth noting that

the Demand Notice under Section 8 of the IBC is to afford the

Corporate Debtor an opportunity to clarify his position regarding

payment of debt that the Operational Creditor is claiming to be due.

Sections 8 and 9 of IBC are reproduced below for ready reference:

"8. (1) An operational creditor may, on the occurrence of a

Company Appeal (AT) (Insolvency) No. 369 of 2020

Page 11 of 18 default, deliver a demand notice of unpaid operational debtor

copy of an invoice demanding payment of the amount involved

in the default to the corporate debtor in such form and manner

as may be prescribed. Persons who may initiate corporate

insolvency resolution process. Initiation of corporate insolvency

resolution process by financial creditor. Insolvency resolution

by operational creditor.

(2) The corporate debtor shall, within a period of ten days of

the receipt of the demand notice or copy of the invoice

mentioned in sub-section (1) bring to the notice of the

operational creditor-- (a) existence of a dispute, if any, and

record of the pendency of the suit or arbitration proceedings

filed before the receipt of such notice or invoice in relation to

such dispute; (b) the repayment of unpaid operational debt-- (i)

by sending an attested copy of the record of electronic transfer

of the unpaid amount from the bank account of the corporate

debtor; or (ii) by sending an attested copy of record that the

operational creditor has encashed a cheque issued by the

corporate debtor.

Explanation. -- For the purposes of this section, a "demand

notice" means a notice served by an operational creditor to the

corporate debtor demanding repayment of the operational debt

in respect of which the default has occurred.

Company Appeal (AT) (Insolvency) No. 369 of 2020

Page 12 of 18

9. (1) After the expiry of the period of ten days from the date of

delivery of the notice or invoice demanding payment under

sub-section (1) of section 8, if the operational creditor does not

receive payment from the corporate debtor or notice of the

dispute under sub-section (2) of section 8, the operational

creditor may file an application before the Adjudicating

Authority for initiating a corporate insolvency resolution

process.

(2) xxxxxxxxxx"

16. The Demand Notice has to be responded to within 10 days, as

required in Section 8(2) for the purpose of bringing to the notice of

the operational creditor the existence of a dispute or evidence of

repayment of operational debt. The Corporate Debtor has not done

so, prompting the operational creditor to take action as per Section

9 (1). Later during hearing before the Adjudicating Authority, the

Corporate Debtor raised the issue of existence of a dispute. It

appears to be a spurious dispute, raised to ward off the

responsibility of repayment of debt as claimed by the operational

debtor.

17. The doubtful nature of dispute can also be inferred from the

fact that Ld. Counsel of Respondent (Corporate Debtor) has stated

in arguments that he had sent emails regarding the high percentage

Company Appeal (AT) (Insolvency) No. 369 of 2020

Page 13 of 18 of wastage of newsprint on 28.9.2016, 5.10.2016, 25.5.2017,

2.7.2018 and 9.8.2018. The first invoice that is included in the

demand notice which is due for payment is of 22.2.2018. All the

other invoices included in the demand notice are of dates later than

22.2.2018. Quite obviously the emails seeking clarification for high

wastage of newsprint sent in 2016 and 2017 relate to invoices

which are not included in the demand notice. In all probability

payment against these invoices have been made despite the issue of

newsprint wastage having been raised. It is not clear why the

same issue is raised again by the corporate debtor for later invoices.

It appears that this issue has been shown as a pre-existing dispute

as an afterthought by the Respondent.

18. It is also noteworthy that the respondent has on various

occasions vide emails dated 20/2/2019, 19/2/2019, 22/10/2018,

24/9/2018, 6/9/2018 and 5/9/2018 assured for making pending

payments. So on one hand the respondent keeps on promising to

make the payment, while on the other he raises the issue of

existence of a dispute when the application under Section 9 of IBC

is filed before the Adjudicating Authority. These actions raise doubt

regarding the veracity of the dispute and its pre-existence. We find

the dispute now raised regarding delay and wastage to be mere

bluster considering the conduct of Respondent.

Company Appeal (AT) (Insolvency) No. 369 of 2020

Page 14 of 18

19. Paragraph 9 of the impugned order mentions that it is not for

the Adjudicating Authority to do a roving enquiry to ascertain the

exact amount of unpaid debt and makes it a ground for dismissing

the application. The law is very clear that it is enough if under

Section 4 of IBC the unpaid debt is more than the threshold value

of Rs. One Lakh for acceptance of application under section 9 of

IBC. While there is dispute about the rate of interest claimed by

the Appellant it does not significantly alter the quantum of unpaid

debt, which will remain to be above Rs. One Lakh. We, thus find,

that the application is maintainable on account of the unpaid debt

being more than Rs. One Lakh, the threshold amount.

20. Another issue raised by the Respondent relates to the

Appellant not printing the newspaper for 16 days and the loss

incurred by the Respondent on this account. The Clause 3 of the

agreement stipulates that the responsibility of supplying newsprint

lay with the Corporate Debtor. Hence this issue does not provide

any help to the Respondent in his case.

21. Finally coming to the issue of high percentage of wastage of

newsprint in printing, as alleged by the Corporate Debtor, we find

that the said agreements make it very clear that the minimum

number of chargeable copies will be 10,000. In addition, the said

agreements also stipulate that the wastage will be less than 4%.

Company Appeal (AT) (Insolvency) No. 369 of 2020

Page 15 of 18 This wastage, quite obviously, is in relation to printing of 10,000

copies. It is understood that in printing jobs as the number of

copies increase the quantum of wastage decreases and, conversely,

as the number of copies decrease the quantum of wastage

increases. In the present case, the number of copies that were

required by the Respondent to be printed were well below 10,000,

and therefore the quantum of wastage was more than 4%. In any

case the invoices raised before 22.2.2018 were settled even though

the corporate debtor had raised the issue of high wastage

percentage. It is, therefore, logical to expect that the later invoices

should also have been settled on the same principle. Hence, we

find the insistence of the Respondent that the Appellant should

provide clarification for higher wastage to be superfluous and

according to us this dispute does not fall in the category of pre-

existing dispute.

22. Regarding submitting the dispute to arbitration, we find that

the matter was not referred for arbitration by either of the parties.

This issue of possibility of arbitration has been raised at the appeal

stage. It is not for this tribunal to direct the parties to go for

arbitration.

Company Appeal (AT) (Insolvency) No. 369 of 2020

Page 16 of 18

23. In the light of the discussion in the above paragraphs we are

of the opinion that the Appellant and the Respondent continued in

their relationship of Corporate Debtor and Operational Creditor

even after 3.12.2017 and hence effectively the agreements

continued to bind the parties. The Corporate Debtor accepted the

invoices raised on and after 22.2.2018 and in various emails kept

on promising to make payments and buying time for making

payments. The issue of wastage of newsprint being more than the

stipulated 4% would have been relevant only if the print orders were

more than 10000. In view of the fact that print orders for various

editions of the newspaper Vishwavani were substantially less than

10,000, the higher percentage of newsprint wastage can't be

ascribed to the Appellant. The Appellant is well within his right to

raise invoices for the minimum chargeable copies of 10,000 as per

clause 7A of the agreements.

24. Thus Appellant's application under Section 9 of IBC satisfies

all the ingredients as laid down in law. The same deserved to be

admitted. Therefore the appeal succeeds and the Impugned order

dated 16/12/2019 is set aside. The matter is remitted back to the

Adjudicating Authority. The Adjudicating Authority will admit the

application (unless parties settle dispute before such Order), and

pass further consequential directions as per provisions of IBC.

Company Appeal (AT) (Insolvency) No. 369 of 2020

Page 17 of 18

25. There is no order as to costs.

(Justice A I S Cheema) Officiating Chairperson

(Dr. Alok Srivastava) Member(Technical) New Delhi 21st June, 2021

/aks/

Company Appeal (AT) (Insolvency) No. 369 of 2020

Page 18 of 18